While I agree it's a little unrealistic, I don't see why from a game perspective a gnome on a war dog should get a discount on barding, but a human on a war horse has to pay full price. Like you don't get a special discount on full plate as a small character, or for any other equipment. Why would you get a discount on barding? It's not like small characters on medium mounts are less effective in game terms. Indeed, lances are one of the few ways small characters can get Reach without the Heavy penalty.
From a game perspective, if you want a mount with heavy armor and AC 18, it's 6,000gp.
I'm fine with adjusting weight on the basis of realism, but cost is entirely about making things equitable. yes, this probably means that splint barding for 800gp (if 15 Str) or 3000gp for Half-plate at AC 17 is probably better.